The concept of speculating on currency exchange rates, better known as forex trading, has remained constant ever since the first electronic trading platforms emerged in the early ‘90s. Essentially, forex traders predict whether one currency will increase in value against another using derivatives such as futures, options and, most commonly, contracts for difference (CFDs).
While the forex market is seen by many as a legacy financial market, in recent years, many new traders have been introduced to the craft of trading because of popularised markets such as stocks and cryptocurrencies. The trouble with stocks and cryptocurrencies is there are thousands of individual assets to track, some of which come and go. In contrast, there are just dozens of forex trading pairs and just several major pairs. The majority of currencies we have today are here to stay.
Forex trading basics
You’re probably familiar with the proverb “money makes the world go round”. Well, that’s why the forex market is considered by many people the ultimate market to rule all other markets.
Many discuss how the forex market is tradeable around the clock and that it’s the most liquid market with several trillion dollars of currency traded daily. But what about the fact that all other financial instruments are quoted in currency too.
If you’re buying shares in Apple, you need US dollars; if buying shares in BMW, you need euros; if buying oil, you need dollars, and so forth. Without currency, you can’t invest in other financial markets.
Forex trading trends in 2022
When most traders learn forex trading basics, they are trained to focus on technical analysis, which is the most common technique for predicting the price of currency pairs and timing when to enter and exit their positions. In contrast, few traders use fundamental analysis as there are simply too many factors influencing the demand for different currencies; it’s impossible to understand and analyse them all!
However, these trends affecting forex trading in 2022 will turn the basics upside down. The global economy has entered a period of extreme transformation, and we will experience more and more events that significantly impact the value of currencies.
Bearish markets drive safe-haven currencies
Global stock markets have officially entered bearish territory. The consequence is billions of dollars, euros, pounds and yen leaving major stock markets and being reallocated to other assets or simply parked in safe-haven currencies, such as US dollars and Swiss francs.
Many experts predict this bear market might stick around for quite some time. Despite stocks depreciating, the forex market continues to fluctuate and offers plentiful opportunities to traders. When investors buy safe-haven currencies, the short-term demand drives the price up; holding the currency reduces the supply, helping to preserve the higher price level.
Japanese yen loses safe-haven status
Historically, the Japanese yen has been considered a safe-haven currency. Whenever the global markets experienced a black swan event, investors would hold their cash in US dollars, Swiss francs or Japanese yen. In the most recent stock market sell-off, the value of the Japanese yen has declined to an all-time low rather than increased, as history would suggest.
Inflation changing the way people invest
The world is experiencing a period of unprecedented inflation. Inflation doesn’t just erode purchasing power and make things more expensive; it changes the way people invest.
Suppose you profit 10% from a one-year investment; most would consider it a success. Now suppose inflation for that year was 15%; that effectively becomes a loss. Investors and traders need to seek strategies that outpace inflation. Most forex trading strategies speculate on short-term price movements, which is a more efficient use of capital than buying and holding assets for several weeks or months.
Higher interest rates change the fundamentals of currencies
Raising interest rates is one of the few tools central banks have to control inflation. Increasing interest rates is a theme that will take centre stage in 2022.
One of the prominent forex trading basics traders learn is that interest rates severely impact the supply and demand for certain currencies. As each country or economic region increases interest rates, investors are enticed to lock their cash up in fixed income products, such as bonds or timed deposits. Suppose the Bank of England raises interest rates to 5%, investors will first purchase pounds and then isolate them from the economy by putting them in savings accounts or buying bonds.
While higher interest rates lower inflation by reducing the amount of cash in circulation, it makes borrowing more expensive and slows down costly projects that require loans and mortgages, which can trigger a recession. With interest rates increasing several percent, we might see the return of the carry trade.
Recession leads more traders to discover CFDs
Everyone expected 2020 to be the year of an economic catastrophe, but it appears the global economy was more resilient than the experts predicted.
However, as more crises have since emerged, such as the conflict in Ukraine, aggressive lockdowns in China, soaring energy prices, chatter about food shortages, rising interest rates, a bearish stock market, and a potential crypto winter have all converged to present a cluster of challenges.
Knowing where to put your money can be challenging in the face of a recession. However, the forex market is considered a recession-proof market because as one economy performs better than another, the value of its currency will rise, and the other will fall. There are always opportunities in the forex market, which is why traders who started their journey trading stocks or cryptocurrencies may start gravitating towards contracts for difference.
Many traders find CFDs and forex to be more flexible instruments that enable various trading strategies. Whatsmore, CFDs are asset class neutral, meaning they can be used to trade everything, such as currencies, cryptos, commodities, shares, indices and more.
Social trading 2.0
Social trading isn’t a new concept, but due to complicated regional regulations, most brokers didn’t venture into the realm of social trading. With tixee social trading is making a comeback in 2022. The company offers a platform for experienced traders to become a new generation of financial influencers who can offer their too good not share trading strategies to the tixee trading community. The exciting and engaging social trading platform provided by tixee will help many new traders discover forex trading basics.
How to master the financial markets in 2022
If you’re looking to discover new opportunities in the forex market in 2022 or any other financial market, you need an award-winning multi-asset class broker by your side. tixee is a global broker providing access to many financial instruments you’d imagine trading. With one trading account, you can trade CFDs on forex, stocks, indices, precious metals, energy products, commodities and cryptocurrencies.
One of the best parts about tixee is that the company is committed to helping its clients learn forex trading basics and develop their knowledge with valuable insights covering trending topics in 2022.
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